Second LTC Deal a Clear Positive to Us, But Maybe the Market Wanted More?

Research evidence excerpt

Second LTC Deal a Clear Positive to Us, But Maybe the Market Wanted More?

n. Second, we argue that as

UNM's retained LTC block shrinks so does the range of outcomes on any potential reserve build

from an adverse assumption update. In other words, at some point, this block will be too small to

be a material drag on UNM's valuation. Today's deal is a further step in this direction.

Financial impact: Figure 4 shows capital impacts and sources of funding for the deal. At a high

level, the difference in the market value of required assets and statutory reserves leaves a $1.8B

gap that needed to be addressed. UNM is funding this gap with a mix of sources, including $1.0B

of Fairwind excess capital and $650M of HoldCo cash. UNM noted that the block that is part of

today's announced deal is riskier than its prior reinsured and retained blocks, another positive.

2026 guidance update: UNM lowered its YE 2026 holdco cash expectation from $2.0-$2.5B to

$1.5B-$2.0B driven by the above-mentioned $650M usage of cash but still expects a ~25% leverage

ratio and a 400-425% RBC ratio at YE. Importantly, UNM continues to see $1.4B-1.6B of capital

generation and $1.5B of capital uses, including ~$1.3B of buybacks and dividends.

LTC Market Update: Today's deal is the 4th LTC transaction announced since 12/23 (2 by MFC and

2 by UNM) and is a positive development for this market. While UNM's counterparties are the same

as with its first deal, it was in discussions with other parties, suggesting future deals are possible.

UNM noted no other blocks have negative margin and capital protection at Fairwind is ~$1.9B. Suneet Kamath, CFA * | Equity Analyst

+1 (212) 778-8602 | skamath@jefferies.com

Bottom line: We feel the weak price reaction was in part due to expectations for a larger deal (e.g.,